Bannerman Resources Ltd.
- ASX: BMN
- Shares Outstanding: 1.06B
- Share price: A$0.04 (27.05.2020)
- Market Cap: A$40M
A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).
Our weekly romp through the world of uranium with Brandon Munro, reveals that even in a relatively quiet week, there is much to discuss. Two potential large stories.
1. AOC says she is open, as is Joe Biden, to looking at nuclear as part of the solution for America’s energy. This calms unsettled nerves within utilities as the US elections loom at the end of this year. It gives clues about budgets and eases investment decisions, although we doubt any investment decisions will be made until after the election.
2. Is America trying to build and American Rare Earths Hub? Some big clues this week as Energy Fuels engages Constantine Karayannopoulos and Brock O’Kelley, two rare earth element industry experts who each have decades of experience producing commercially viable rare earth products, to aid in the development and implementation of commercial and technical REE strategies for the new US REE program. Karayannopoulous built and sold MolyCorp for c. $1.3BN, and currently runs Neo, one the world’s largest downstream rare earths businesses. Something big is happening here.
We also discuss the parallels between uranium and rare earths. The geopolitics and global weaponising of access is becoming exacerbated.
- COVID-19’s Effect on Uranium Supply: A Look at Kazakhstan, Australia, Canada and Namibia
- Disruptions to the Market and What They Mean for Uranium Investors and Companies
- Spot Price Movement: Anticipating the Next Spikes and Throughs
- US Government Parties Supporting Uranium: AOC, Bipartisans and Others Affecting Public Perception
- Energy Fuels Announcement: Parallels Between Uranium and Rare Earths
CLICK HERE to watch the full interview.
Matthew Gordon: Hey Brandon, how you doing, Sir?
Brandon Munro: All good, Matt. How are you?
Matthew Gordon: Yes. Nice. Yes. Good. It’s been a long week. It feels like a long week already and it’s definitely the end of your week. So, thanks for touching base. But it’s been a quiet one all round, hasn’t it?
Brandon Munro: Yes. It’s got that feel about a week that has just consolidated after probably six, seven, eight weeks of fairly busy news and quite a lot of spot price activity. And you know, we have just had a very gentle uptick in the spot price, Uranium news, companies. It’s just been one of those weeks that has meandered along really.
Matthew Gordon: Meandered along. This is going to be a short one, and I mean it this time, but it is just worth kind of going through some of the things which are affecting the macro component because those things aren’t changing too much. If we look at Kazakhstan, obviously some numbers came out there. I mean, what’s your take on that?
Brandon Munro: Well, we have seen increasing COVID-19 cases in Kazakhstan over the last week, which is not always a trigger for relaxing restrictions as they’ve done. So you can expect from that that they will be cautious going forward. We have seen cases of, you know, 1,500 a day type thing, sorry, 350 a day type numbers coming through. And interestingly, Kazakhmys, which is the largest copper producer in Kazakhstan, they’ve now had to close one of their very big mines near Qaraghandy, and that’s the Nurkazgan copper porphyry mine. So, I think they had 35 cases out of about 1,100 workers, so it became a little hotspot for them and they expect to have it back into production with new shift rosters and all of that type of thing in June. But still, that’s a bit of a warning sign for Kazatomprom and anyone else in the industrial complex in Kazakhstan, that with rising cases, the chance of becoming a hotspot does increase.
So, we have seen continued high cases in Russia, although it is tapering off over the last week. So, I still see that as status quo. I don’t see any reason for the Kazakhs to be popping the champagne corks anytime soon there. And I’d expect to see no reason why we won’t have the Kazakh assets down for the three months that they’re expecting. And we’re a little bit more than halfway into that process now.
Matthew Gordon: Right. Okay. But again, as far as the macro story is concerned for Uranium, that continues to be good news in terms of its reduction of the supply into the marketplace. Should we touch upon some of the other countries as well? Obviously, we have talked in the past about Australia, Namibia and Canada. What are you hearing from them?
Brandon Munro: So, with Canada, first of all, we are still seeing quite a high caseload in Canada. It is tapering off in Saskatchewan; they’re starting to open up again. I think they’ve put down 8th June as the date for restaurants and bars and gyms and so on opening up. But the Northern territory still tells a different story there. So, La Loche, the village or the settlement that Cameco highlighted in their earnings call, they are seeing some level of reduction in cases, but it’s still a community in crisis and there’s little spot fires popping up around the place. There’s another settlement nearby that’s now had 35 cases in a first nation settlement. So I, again, there just isn’t any call for a relaxation of what Cameco has done there until we really see those first nation communities come through this and get over it.
Matthew Gordon: Then Australia, all fine there?
Brandon Munro: Yes, it’s almost embarrassing to say it, being in Australia; we seem to have really come through this well. South Australia, which is the home to most of our Uranium production with the Olympic Dam and Beverly, they haven’t had a case since 7th May, and I think the last case before that was a couple of weeks before then and they don’t have any active cases left in the state. So, you can effectively declare South Australia free of COVID-19 for now. I mean, of course there’s risks about what will happen when they open up their internal borders into other States and there’s the chance of, I want to say a second wave, but it’s really still a first wave that we would be exposed to. Their main border is with Western Australia to the West and we have also got things pretty much under control; just a couple of cases each week. So, I don’t see any prospects for COVID-related supply disruption, or dramatic supply disruption at those Australian centres.
I would just say that there is still a lot of caution around interaction with indigenous communities, so that is affecting the way that ERA goes about its business. So, they’ve got different restrictions on their fly-in, fly-out and their drive-in, drive-out workforce to try and mitigate that. But the miners generally have adapted quite well now to all of these different ways of handling their shifts so it’s probably just in the irritant category now for ERA and for Olympic Dam.
Matthew Gordon: Okay. And then your territory in Namibia, are you back to work?
Brandon Munro: Yes. Namibia is back to work. The mines in Namibia have been ticked through that. What they needed to do was present a COVID-19 management plan to the Ministry of Health before they could resume full production. They’ve done that. What we’re hearing on the ground is that neither of those giant Namibian mines are back to full production, but they are back at work. So that’s a good sign for Namibia, which has had fairly devastating economic ramifications from the shut-down, when the shutdown has been very effective at controlling the virus, they only had 16 cases that they’re aware of and now there’s a couple that have popped up in one part of the country. But again, if the testing is an indication of what’s going on in the population, they’ve effectively eradicated it for now. But at some very dramatic cost. And I think it is really heart-breaking to see what that’s done to a lot of the people there who are already on the poverty line or below. You definitely see a lot more impact on people from starvation and other related issues there compared to what they might’ve been facing with the virus itself. Into the longer term that’s going to promote a heavy development agenda and obviously incentivise the government to do whatever it can within its powers to bring on employment and development. So, in the medium term, that’s good for the Uranium industry there as well.
Matthew Gordon: Okay. So, what does all this mean? Okay. So, we have talked before, you know, in the past few shows about the macro stories, flight amount, et cetera. There continues to be disruption, and people are trying to get back to work. But what does it mean for the Uranium sector as a whole? And what’s it going to mean for some of the equities? You know, companies like Bannerman, companies that we, you know, in North America and Africa, what should people be looking for from these companies? Is it just more of the same, or how are you viewing it?
Brandon Munro: So, I think what’s relevant here is this supply disruption has contributed to accelerated destocking. Inventory has been the issue for our sector making a price break out for several years. So even though we have had fairly deep deficits, structural deficits, in terms of what is supplied in the world, primary and secondary versus what’s consumed, it’s destocking or under buying or working off inventories, whichever one of those terms you’d like to use, that’s what’s filled the gap. And that’s what has been necessary in order for the utilities to return to fully buying what they consume. So, if nothing else, this event or series of events, is probably going to take 20Mlbs out of the market. So, there’s 20M lbs of additional destocking. To put that into some sort of context for the viewers, in the US, which is the largest single market for Uranium, they destocked in 2018 to the extent of about 10M bs.
We will shortly have the numbers for 2019, but we think it was pretty similar. So, it has created the equivalent of two whole years of destocking in the US. And most people who look really closely at these numbers, and I’d consider myself in that category, believe that inventory has now returned to historically normal levels. And in certain pockets, it’s less than historically normal. And as we discussed last week, that comes in the context where there’s numerous reasons why utilities would ought to be preferring to be slightly on the heavy side for their commercial inventories right now. And what I was referring to for viewers who didn’t see last week’s show was Euratom and security of supply comments where they were very strong and advising their Euratom member utilities to maintain significant levels of inventory in order to risk manage a variety of different issues: transportation, bottlenecks in the conversion cycle and also in increasing geopolitical risk and potential for mine supply to be unavailable.
So that’s the immediate effect. The secondary effects of this go to sentiment. Now, investor sentiment – yes, that’s one thing, and I think we’re seeing Uranium stocks perform okay. They’ve sort of slowed down in terms of expectations and liquidity and volume and so on. But they have still recovered everything that they gave up to the market after COVID-19 spooked junior resources, at least. But what I really refer to when I say sentiment, is a reason for utilities to revisit their procurement strategies. In particular the procurement strategy of burning off their inventory or selling down their inventory. And at a simple decision, if it was taken more or less across the entire industry to buy what they burn, not to de-stock, not to underbuy any further, that’s going to put a lot of pressure on the structural deficit that without COVID-19 related disruption is still 20Mlbs. That’s more than 10% of the production in the market.
So I think if you look at those two things in combination; the destocking has occurred to an extent now where there is genuine tension and all it requires is the utilities to decide that that destocking has gone far enough and now it’s time to be a genuine buyer of material to cover what they’re burning in their reactors. And from there, demand growth will take care of that as we continue to see supply deficits at a structural level.
Matthew Gordon: So, do you think that people perhaps got a little bit too excited a couple of weeks ago with Uranium equities. The spot price, you know, has seen a significant recovery over the past couple of months. It’s sitting at around what, USD$34/lbs today or yesterday? Do you think that that needs to move much more to give the market further impetus to kind of move forward, or are we going to sort of see it sitting around these levels for some time to come?
Brandon Munro: I don’t think people got too excited, necessarily ,because if you look at where equities are at the moment compared to not only the spot price in absolute terms, but the setup that we have got for the rest of the year, I still think they’re deeply undervalued. What I do think happened is that many investors started this little upturn with unrealistic expectations of what would happen in the very short term. And that’s been a recurring theme in our conversations, for example, and some of the others that you’ve had as well. The expectation that this was the boom, and some of the exaggerated numbers that we have seen in terms of the extent of the supply disruption, we have seen a few commentators either get their numbers wrong or describe them in the wrong way. That’s been caught onto by some retail investors and others who think that this is like an absolute catalyst, and it’s not that. It has not had an effect on spot.
So, I think what we have seen is a slowing in equity prices, partly because there’s been some great profits for anyone who bought the dip, and as they have seen the spot price growth slow, that has been an appropriate time for them to consider taking profits. And also, for those investors who bought with just totally unrealistic expectations of what the trajectory is really going to look to. And so, I think that the setup is very, very strong for fourth quarter this year, and there’s probably going to be a few plateaus in the spot price. It’s going to have a few more lurches. It’s going to come back. But on fundamentals; fourth quarter this year, probably leading in from third quarter, are going to look fantastic. And so, for patient investors who can sit and buy these little mini dips along the way, I think there’s going to be great times.
Matthew Gordon: Yes, I think that’s right. And we have sort of said that for the past 2 or 3 conversations in the past 2 or 3-weeks. I want to talk about something else that happened this week: Alexandria Ocasio-Cortez, she is a representative from Eastern New York, US Representative, very vocal. She is a very young dynamic Democrat. And she seems to know how to use social media to great effect. And she’s come out and said that she would consider, or she’s open to nuclear as part of the green solution, which I think is big. And then the other thing that happened at the same time was that you had 10 across party or bi-partisan senators also call for the extension to the Russian suspension agreement. So, there’s a lot of noise happening in nuclear and therefore Uranium this week in the US, so that is not going away because, and the reason I say that, I think a lot of people were slightly disappointed with the Nuclear Fuel Working Group report. I think others latched on to it and said it was the next great thing. So, it’s definitely, there’s a discussion going on. What’s your take with regards to what’s happening in the United States on the topic of nuclear at the moment?
Brandon Munro: First of all, with the bipartisan comments and call for not only the Russian suspension agreement to be extended or continued, but also to be enhanced and strengthened, I don’t really see that as big news. From my perspective anyway; I thought that was a quite natural next step. It has made news because of its links with the Nuclear Fuel Working Group report that the DOE released a few weeks ago. And when you look through the list of provocateurs there, you’ve got the usual suspects who’ve already been quite vocal: Lindsey Graham, Senator Barrasso, et cetera, et cetera. I don’t look at that list for example and say, ‘Oh my goodness, that person, that’s interesting.’ On the other hand, AAC, her comments really are quite a watershed moment I think. And that is big news that perhaps has been underreported or under-recognised.
And so, if we take a step back, she has represented the vocal radical left and has very demonstrably excluded nuclear from any consideration under the green new deal with a fair bit of support from Bernie Sanders when he was still running at the time. And so, the green new deal was seen as, because that exclusion was seen as a real threat to, well, a threat to the nuclear industry and a threat to logic really, and certainly a strong threat to the achievability of its objectives. How can you possibly exclude what still is by far the largest source of clean energy in the US, and represents 22% of the grid? Now she’s had reason to change that and it’d be really interesting to know if Biden’s influence there and having a more moderating influence has played a role in that. And her comments itself for anyone out there, they should go to it directly, not only did she say that the door is open to nuclear, but she also emphasised that it is a critical part of the discussion, which is about as close as you can get to a backflip there in terms of her policy. And emphasising, I think 3 times in her comments, that the door remains open. That’s from my read, very much about allowing nuclear to come back into that conversation and start the new green deal. And there’s been a number of lobbyists and even community groups and employee groups from nuclear reactors who have proposed an alternative green deal that just has a bit more reality and allows nuclear to play its role.
So, for me, that’s important. It’s important because it is moderating the Democratic position as they start to get closer to the election. It means that one of the most attractive, if we can put it that way, like the most appealing, is perhaps a better way of saying it, one of the most appealing voices on that far left end of the Democrat party is now relatively aligned with the moderate view that Biden’s got towards nuclear. But it also goes to the capturing, I think, a realistic perspective from the younger generation when it comes to looking at what nuclear can do. What we typically see is a progression along many lifetimes where people start somewhat radically socialist and they go through university and they wave flags and they do all of that sort of stuff and they tie-dye their shirts and whatever else it was that you and I did when we were there. And then as reality sets in in life and they realise the hard grind of raising a family and paying bills, they sort of move more moderate and potentially out to the right. So, this is good for assisting the part of the constituency who are still going through that experiment with liberal socialist ideals and had made those ideals synonymous with anti-nuclear. Because the other thing to bear in mind is that subsection of society, they haven’t grown up with the fear of the bomb. And when you talk to many young people, and the stats bear this out in terms of when they segment their surveys about support for nuclear power, in many cases it is a reliance on things that Greta Thunberg is saying, or the AOC is saying, and just wanting to fall into line with the cult or with the movement, if I can put it that way. So this is important, and it’s important for shifting the generalised voter base in favour of nuclear power, and going into the election in November, it is moves like these that will create a really strong positive foundation for nuclear in the struggling US market, regardless of who gets in.
Matthew Gordon: I think it’s a very interesting time. And I think timing has been really important because if you look at people like Bill Gates, he has been banging the drum for a few years now about nuclear, you’ve got the t-shirt-wearing Michael Schellenberg who has been telling this story for a long time now. And then you’ve got things like the Michael Moore film which came out – Planet of the Humans, which I don’t know if you’ve watched, but you should watch. You have? Okay. You know, it’s kind of interesting, the narrative is interesting in terms of things slightly anti-renewable and what the implications are for a nuclear, there’s a kind of realism about what it takes to put all of this, these energy requirements together. And then you’ve got someone you know, young and dynamic like AOC and You know, telling a story to a different audience in a different time. It seems to, That’s why it’s interesting, what your thoughts were. So, it seems interesting that now 10 senators are coming together across party, bi-partisan coming together and pushing the, you know, ‘Made in America’ story, protectionism, security and all of that kind of stuff. And then you’ve kind of got a very sort of liberal, you know, Michael Moore, AOC type approach to this. Nuclear is getting support from a lot of different sides in terms of age groups, you know, institutional versus the kind of social media type thing. So, it is a very interesting, interesting time in that people, I think would better understand what nuclear is capable of. And of course, not everyone’s going to buy it or love it, but certainly the fact that it’s been talked about is good and it’s healthy.
The other thing, so, again, it’s possibly worth coming back to and seeing how that story plays out and develops. But another little thing, I said this would be short, but we always have an interesting conversation, don’t we? I don’t know how we do it. There was an announcement with Energy Fuels this week, because they have, we have previously talked to them about Rare Earths, you know, and it seems to be sort of intertwined with Uranium in terms of the, you know, radioactive material, etc. High value, the security component, strategic, geopolitical importance of it, you know, China being a big consumer of it and processor and et cetera. So there’s is a lot of parallels here, but Energy Fuels announced this week that they had engaged with, I’m going to have to look at this because this is a name which I’m going to struggle with: it says Constantine Karayannopoulos, who for those who don’t know, originally sold MolyCorp for about USD$1.3Bn. He is very big in the sector. I think he then sort of bought out when Molycorp then subsequently went bust and they then bought out Neo from it. And that’s Neo, Linus and Mountain Pass. Those are the 3 big players in the Rare Earth space, so that alignment with a US based company, with a US facility is interesting to me because of the parallels with Uranium. And I’m wondering, you know, what’s going on there? What are your thoughts on Rare Earths as a strategic mineral like Uranium is for the United States? Is that an important move for them or is that just, this is what happens in this industry?
Brandon Munro: No, most definitely. I mean, the parallels are really interesting with Rare Earths. First of all, at a geopolitical level they have similar consequences to industry that Uranium does. So, the dominance, particularly in the heavy Rare Earth sector that China has, and China’s willingness to weaponize it as well. So, if you go back to 2010, you might recall that there was an incident where an illegal Chinese fishing vessel was seized by Japan. And in one of the most interesting, blatant weaponizations of trade, China basically said, send them back or we’re not going to let any of our REEs cross the border for your technology industry. So that’s a reminder for people in the Uranium sector, just how important geopolitics can be. And whilst the concentration of Uranium is not as concentrated as Rare Earth elements, it’s not that far off when you think that four countries produce 80% of the world’s Uranium and the top 8 produced 95% of the world’s Uranium. It’s certainly not Copper or Zinc or something else that’s distributed pretty much anywhere.
The other interesting parallel is that, as you’ve noted, there’s a very strong coexistence of Uranium and Thorium in most REE minerals. So, most REE players need to have a good awareness and some understanding of Uranium and Thorium and radionuclides and all of the risks associated with that. And we have seen a little bit of the uphill battles that we face in the Uranium sector leaking out into the REE sector, such as Linus’s problems in Malaysia with local communities not having enough to do on a Thursday night and banding together to oppose the plant there and so on. So, there is a natural nesting if you like, of Uranium and REEs and I think any strategy that’s designed to safely extract the Uranium out of REE minerals for beneficial use rather than expensive storage just has to make sense.
Matthew Gordon: Yes, I’m intrigued by it and I’m going to try and speak to the CEO, Mark Chalmers next week, but I’m intrigued. It’s just, it feels to me there’s a kind of critical minerals story, a USA critical mineral story building here because the importance of Uranium, the importance of these Rare Earths, etc. I kind of feel that the stars are aligning there, because they, again, they’ll have very similar support in DC, in terms of Senators, or even in Capitol Hill itself, because these are very similar problems that they’re trying to solve. So, but look, one for another day.
Brandon Munro: There are further parallels as well that we’re thinking about very much in the context of what the Nuclear Fuel Working Group report is driving at. You might recall that basically China said to a number of technology companies, the only way we can assure you access to heavy rare earths is for you to produce in China. And there they were successful in implementing a significant shift of technology production out of the US, out of South Korea, to a degree out of Japan. And all of those countries that just didn’t have heavy Rare Earths were enormously vulnerable. And so, China has got form, and I don’t see any reason why that form of influence on industrial bases won’t be exerted from Uranium. But here’s the interesting catch: China, the boot is on the other foot for China when it comes to Uranium, because unlike REEs where they control 95% of the market, it’s almost precisely the opposite. That will be, over time, they’ll be capable of producing only about 5% of their own Uranium domestically, absent some big discoveries. So, it is just fascinating to look at where the parallels and where the analogues are between those two sectors, so we should come back to it.
Matthew Gordon: We should definitely come back to it because I think that the language, that weaponizing is starting to be seen more. I think the USA is starting to use that language on a lot of topics, not just in the mining space. And I think, you know, the geopolitical component is always fascinating. It’s always interesting. I am sure there is a great book to be written on it as well. But look, Brandon, thanks so much for catching up with us this week. We didn’t think there was much to talk about. We were wrong.
Brandon Munro: Yes. Well either we are very interesting, or I just waffle too much. We’ll let the viewers decide that
Matthew Gordon: None of the above. So, we’re not, none of them. No, it’s not that you’re not interesting and you don’t waffle. I really enjoy it. Okay, well, I better let you get back to your weekend. You’ve got to get home, see the wife and kids, enjoy yourself. Anything planned for the weekend? Fun stuff?
Brandon Munro: Just a quiet one here. I have got a fair bit of work to catch up on. It’s going to be rainy on Sunday, so I have told the kids they can watch a movie and I’ll disappear back into the office.
Matthew Gordon: Beautiful. Good man. Okay, well keep at it. We’ll speak to you next week and see how the world has changed then.
Brandon Munro: Great. Okay. All right. Enjoy your weekend. Cheers, Matt.
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